For decades foodservice has been known for its high employee turnover. Due to the current tight labor market, though, some operators now use the word crisis to describe employee turnover.
Some fast-food chains have turnover of 130 percent to 150 percent. Between 2015 and 2017, the restaurant sector’s turnover was 81.9 percent, according to the U.S. Bureau of Labor Statistics.
For decades restaurant management shrugged off turnover as just a normal part of the business. Some even argued there was not a real cost to turnover since they could easily replace departing employees. Now management believes turnover is excessive and many operators see turnover as their number one business problem. A number of years ago Burger King estimated the cost of replacing a worker was $600. The National Restaurant association says it costs $2,000 to replace an employee, adding the amount will vary by segment and job level.
Determining the actual cost of replacing an employee may help resolve the turnover crisis. Operators must know much time it takes to hire and train a worker, as well as how long it takes a worker to become proficient at the job. Experts state that half of the worker’s pay during this time period should be considered a loss.
If new hires can be persuaded to stay 90 days or longer, turnover drops and the pay off for the investment in training is enormous. Besides training, foodservice operators continue to invest heavily in technology such automating repetitive tasks in the kitchen as well as increasing automation of the ordering process.
Operator investment in both front- and back-of-the-house must pay off for the industry to survive and prosper.
Economic News This Week
- Initial-jobless claims edged up by 1,000 to a final level of 217,000 for the week-ending August 31. The 4-week moving average increased by 1,500 for a final level of 216,250. Despite rising concerns about a recession, it does not appear as if layoffs have increased.
- The manufacturing sector contracted in August, per the Institute for Supply Management. The sector totaled 49.1 in August, down from 51.2 in July. (Any reading greater than 50 shows expansion.) The New Orders Index was 47.2 in August, down from 50.8 in July. The Production Index was 49.5 in August, a decline of 1.3 points from July. August’s positive news came from the Orders Backlog Index, which grew to 46.3 in August from 43.1 in July. Finally, of the 18 manufacturing industries surveyed, half reported growth.
- The ISM’s Non-Manufacturing Index increased in August, marking the 115th consecutive month of growth for the non-manufacturing sector. The Index hit 56.4 in August, an increase of 2.7 points from July. (Any reading greater than 50 indicates expansion.) The Business Activity/Production Index rose to 61.5 in August from 53.1 in July. Likewise, the New Orders Index grew by 6.2 percentage points for a final reading of 60.3. The Employment Index fell to 53.1 from 56.2. The only area of concern was the Order Backlog Index, which fell from 53.5 in July to a slightly negative reading of 49.0. Of the 17 non-manufacturing industries included in the study, 18 reported growth. This included Accommodations & Foodservices which ranked second in growth.
- Orders for manufactured durable goods grew by 2 percent in July, per the U.S. Census Bureau. Transportation equipment orders led the increase.
- Private sector employment increased by 195,000 in August, per ADP. All size companies did significant hiring for the month. The Leisure and Hospitality sector employment increased by 11,000.
- U.S. employment rose by 130,000 in August, per the U.S. Bureau of Labor Statistics. This is far below the average monthly gain in employment of 223,000 last year and significantly less than the average monthly increase in employment of 158,00 so far this year. Moreover, the August rise in employment is somewhat inflated by the hiring of 28,000 people by the Census Bureau in preparation for the 2020 census. Hiring for the private sector was put at 96,000. August unemployment was 3.7 percent, the same rate for the past three months.
Foodservice News This Week
- Foodservice operators increased their payrolls by 11,900 people in August. This represents 12 percent of the number of new employees in the private sector for the month.
- Bear Robotics is developing robots to deliver food to restaurant patrons. The firm’s first model “Penny” is up and running and supposedly fascinating customers. Only time will tell if people prefer interacting with live waitresses and waiters. The CEO of Bear Robotics, John Ha, is the son and grandson of foodservice operators and at one time ran his own restaurant. He professes to understand the labor situation restaurant management faces on a day to day basis. Two-year-old Bear Robotics has locked in $10 million in financing and is closing in on $35.8 million more.
- Starbucks is developing a “pick-up only” prototype. The concept was based on the success of the Starbucks “Express” shops in China which have customers order ahead on their mobile devices. The first pick up only store will be in Manhattan. If successful Starbucks plans to roll out the concept to Boston, Chicago, Los Angeles, San Francisco and Seattle. News of the delivery only concept comes as the coffee giant prepares to open its largest store location – a 43,000 square foot “flagship” store that will serve pizza and cocktails.
- Round Table Pizza also rolled out a new restaurant design. The first updated location opened in Sacramento, Calif., and Round Table plans to convert all 440 locations to the new design. The updated store offers new amenities that include a beer wall, signature round booths, game room and party room.
- Corporate Stirrings: The ONE Group announced an agreement to purchase certain assets of the Kona Grill, which is in chapter 11 bankruptcy. Red Robin Gourmet Hamburgers rejected an unsolicited conditional offer from Vintage Capital management to purchase the chain for $40 a share. The private equity firm had offered to buy Red Robin earlier this year. Brinker International intends to purchase 116 Chili’s restaurants from franchisee ERJ Dining. Brinker expects the acquisition to generate $300 in annualized revenue. The press release did not state the price of the deal.
- Growth Chains: Anthony’s Coal Fired Pizza, which currently has 67 units, has set a goal of having 100 locations by 2024. Torchy’s Tacos plans to open 100 more stores in the next 5 years. Fuzzy’s Taco Shops will open 3 locations in Charlotte, N.C., and 12 more across the state.
- Comparable Store Sales Reports: Casey’s General Store Up 1.6 percent
For details and same-store sales of other chains, click here for the latest Green Sheet.